Classism in the Gig Economy

Rideshare companies aren't dropping us off where we want

thoughtsclass

Dec 28, 2019 · 13 min read

The rise of gig economy companies since their founding starting in the mid-2000’s has shifted how many people work, commute, and consume. These companies leverage advances in tech in the software world like mobile and cloud computing to disrupt processes and infrastructure in the physical world. They bring scale and efficiency to services like taxying, food delivery, and lodging via commodification of resources like cars, homes, and labor. While these platforms democratize resources, it is not yet clear if they increase true democratic opportunity in the places they operate. These systems often widen gaps between entry-level workers and platform builders. By design, they can displace more sustainable business models. We must explore alternative forms of ownership and incentive structures within the gig economy to work towards a more equal and sustainable future.

Framework for Evaluating Technology’s Impacts on Society

For strictly technical products, it makes sense to evaluate them on effectively strictly technical criteria. Take, for example, Amazon’s advances in cloud computing.1 In this case, questions over speed, cost, and friction are all one needs to comprehensively understand the value proposition and impact of the products.

Technology products which alter physical world systems cannot be evaluated on a limited set of strictly technical metrics. Things are different with a company like Uber. Sure, we can ask the simple questions: Is it easier to get from point A to point B? Is it competitively priced with other forms of transit? Cheaper? Safer? On these dimensions, one can make a case Uber is competitive with or superior to services like taxis and public transit. However, Uber’s tech fundamentally changes our real-world systems like how people get around, get paid, and experience the world. The implications go far beyond surface level metrics.

In a few years, with swaths of Ubers clogging streets, is that better for cities?2 Or when investment is diverted from public transit to subsidize profitability of rideshare services, is that better for all people?3 These are thorny questions which cannot be answered directly. In these cases, a strictly more technical solution is not strictly better. We need people-based and environment-oriented solutions.

The same logic applies when thinking about these platforms in terms of workers instead of in terms of consumers. In strictly technical advances, tech can be pretty good for leveling the playing field. Going back to the case of cloud computing, it’s easier to rent out computing space today than ever before.4 If I want to launch a website, instead of buying my own server I can lease out space at little to no cost starting out. Though there are questions about who owns these servers and who profits (normally big tech companies), this is a competitive field and the benefits to workers (those making apps, those building cloud computing systems) keep improving.

In the case of rideshare companies, the reality is again more muddled. Uber deliberately calls itself a software company, trying to abstract itself from the real-world problems that it must deal with. In a Terms of Service update for drivers in late November of this year, Uber included "you acknowledge and agree that [Uber] is a technology services provider that does not provide transportation services."5 This is indicative of Uber’s efforts to skirt around the impact it has on very real physical systems.

Rideshare’s Disruptive Predecessors

To understand impacts which rideshare companies may have on society, it’s important to understand what came before them.

The rise of public transit has its roots in fragmented, profit-seeking private companies. Trolleys, for example, leveraged new tech in motors and manufacturing to replace horse-drawn carriages.6 Well-financed companies sprung up across metropolises like Philadelphia, Boston, and New York. They struck partnerships and tried to make money through other avenues like real estate and utilities. Regardless, revolutionizing transit for whole cities was costly and risky. Government regulation forced them to keep fares low and to service underrepresented parts of cities. This made it harder to stay private and profit. Many companies failed to strike financial viability, leading to consolidation and, eventually, shutdown or conversion into government entities.7

The rise of taxis was another disruptive battleground. Over decades lacking regulation, various taxi companies rose and fell in NYC alone. The implementation of the medallion system to limit supply and fix rates ultimately tamed the market.8 Medallions proved good for drivers and the city with mixed impact on riders (higher fares and less frequency, but greater safety and dependability).9 Similar schemes exist in other major US cities.10, 11

Medallion systems also spawned new underground economies. Medallion owners lease out their vehicles and medallions to other drivers to take shifts. Just a few weeks ago, London revoked Uber’s right to operate in the city, in large part because drivers were getting around supply limits by sharing identities on Uber.12 It’s easy to draw parallels between rideshare operations of today and transit disruption of old.

Rideshare platforms also benefit from car culture, which is particularly pervasive in the US. Most trips in the US are less than one mile long but we often decide to drive.13 This has led to urban decay and sparser cities which are less friendly to public transit and pedestrians.14

Business Standing of Rideshare Companies

"[The] heavily regulated [taxi sector] had seen little innovation over the prior century, leaving customers to cope with an expensive, inconvenient service that rarely seemed available when most needed. Enter Uber, who incorporated widely available technologies – GPS, Google Maps and mobile computing – into a well-designed app to create a customer pleasing, smartphone-enabled urban transportation service."15

Rideshare is at an inflection point: growth is slowing, and companies are transitioning from growth-oriented to stability-oriented mindsets as they mature and as investors expect returns. Uber lost in excess of $3.2 billion dollars in 2017 and has raised net $11.5B in funding.16 Lyft and other rideshare companies are in similar financial holes.17

Rideshare companies also operate at significantly larger scales in terms of riders and drivers than taxi systems. There is a maximum of 13,587 taxi medallions in NYC, while in excess of 60,000 rideshare cars operate in NYC.18 Moreover, rideshare companies operate in many places like suburban towns where there are no taxi services.

Rideshare and its Impacts on People

Rideshare platforms are architected to offload cost and risks onto drivers. Platforms like Uber entice drivers to sign up with locked-in bonuses and promises of flexibility and freedom.19 Rideshare companies pitch themselves as paths to financial wellbeing, but incentives are not well aligned. Rideshare companies benefit most when they pay just enough for most drivers to stick around. Columbia Business School professor Len Sherman put it well: “Uber has squeezed the revenues available to compensate drivers, who are ultimately responsible for providing the labor, equipment, maintenance, insurance and fuel to serve consumers.”20

In class, we discussed how poor people often aspire to own homes and cars, but these purchases fail to be good stores of wealth: cars depreciate and houses in poor neighborhoods often lose land value.21 Rideshare platforms deliberately push ownership risk off of their books onto vulnerable drivers. For example, to start out as a driver you have to buy a car. Rideshare companies are happy to finance these cars under terms which force workers to drive to pay them off, often coming at a real cost significantly higher than more traditional rental loans.22 This scheme preserves a theme of the course: “anything that poor people own diminishes in value the second they buy it.”23 There’s a two-sidedness to rideshare’s value proposition: sure there’s flexibility, but only if you have the wealth to start off with. For a retired former middle-class worker, driving for Uber can be a good way to spend time and make some money. For a poor unskilled worker with financial obligations, Uber can be a trap with no way out.

As a driver, there’s no vertical mobility. In rideshare, the only mechanism to grow your personal business as a driver is to drive more. There’s no path to management or ownership, only more rides. This is, if anything, a more extreme version of already inequal management structures in place in taxi systems because of the increased scale of operations (Uber is multi-national, taxi conglomerates are at most multi-city) and increased abstraction between different parts of the marketplace by virtue of distributed software. This is a dangerous trend where the skilled workers in society (engineers, operators) get more skilled wealthier while unskilled workers have fewer opportunities for growth or access to capital.

These themes are all tied together by rideshare companies’ persistent efforts for their drivers to be classified as contractors rather than employees.24 Under this scheme, they are not required to pay benefits to workers and assume less risk. To be fair, contractors have greater flexibility in terms of when and how they work though hopefully there is some middle ground which gives both drivers and companies flexibility and mutual accountability. Regulation in this space has been slow to catch up.

Large marketplace systems also have psychological impacts on society. Rideshare services are highly transactional in nature. Even with taxi systems, you flag down drivers or talk to dispatchers on the phone to get a ride. When Lyft first started out, it stressed the people side of its network: Lyft encouraged drivers and passengers to fist bump as a mechanism for breaking the ice before their journeys.25 As these systems have matured, they have moved towards being API’s for logistics rather than conduits for transit and conversation alike. Rideshare companies’ large investments in self-driving vehicles are an indication that this trend will be taken to the absolute extreme.26

In class, we discussed how Penn students are manufactured to be consultants which can be “helicoptered in anywhere.” By virtue of our pre-professional education, we “have the privilege that work can give our lives meaning.” Rideshare drivers too can be called on the whim and dropped into any situation where they are needed, though they are increasingly an implementation detail rather than a differentiated component.

I’d like to note that there are many exceptions to these trends and, for many groups, gig economy opportunities provide the purpose and payment which make them happy and well off.27 That being said, the lack of incentive alignment and negative externalities ranging from increased wealth and skill gaps, increased pollution and congestion, and increased urban sprawl are alarming problems which we should address.

Considering Alternative Solutions

Rideshare's mission aligns with De Soto’s argument that everyone is better off when assets are made as liquid as possible.28 De Soto gives the example of abstracting away property ownership from property use in poor areas of South America, allowing richer investors to bring money in to local economies, maximizing the value of otherwise “dead capital.” Rideshare companies do the same thing for labor and car ownership.

There are issues with De Soto’s argument: whoever starts with capital tends to benefit the most, and many towards the bottom have no form of meaningful ownership. There’s nothing to stop investors from taking advantage of those living on the property they buy up or to make sure that investments are sustainable. Uber VC’s, founders, and engineers own stake in the company while drivers have no path to ownership besides buying shares in public markets. Yes, people could earn income from opening their property to the market, but there’s an inherent differentiator which they lack: capital. Partnerships and long-term strategic plans are the only way to effectively combat this disadvantage.

One possible solution is a better distribution of wealth. As was put in class, real-world systems are a “buffet” where everyone who contributes should have claims on the end product.29 Driver churn is a huge issue for rideshare companies and, as a result, they spend heavily on incentive programs to win drivers over.30 Juno was a rideshare company based out of NYC which gave drivers greater portions of fares and had an equity split agreement with drivers based on their tenure with the company. However, upon getting acquired in 2017, they removed the equity split and gradually lost faith with drivers, ultimately shutting down in November of 2019.31 Juno failed to carve out enough whitespace between its larger competitors. If Juno’s strategy were employed by a market leader like Uber, it could shift the entire industry onto a more sustainable and equitable trajectory. This could turn rideshare companies into partially worker-owned co-ops, more accountable to their drivers and their futures.32

Another important side of rideshare is its lack of accountability to scale sustainably. As discussed, private trolley companies were effectively forced to price and operate in ways that serviced lower-income portions of cities. At the moment, the only incentive for rideshare companies to play well with public transit is to get on the good side of regulators and build out their own brands.33 This can be labelled a strategy credit.34 Regulators could push for stronger, more integrated public-private partnerships in the space to subsidize connections with public transit, thereby strengthening city transit and reducing congestion which, to this point, has been made worse by rideshare services.

Looking Ahead

Something is bound to change in the coming months: rideshare companies can neither be largely unregulated nor largely unprofitable for much longer. The question is how much will change. If rideshare companies keep their current course, my guess is labor markets will suffer from greater inequality and cities will struggle to renew and scale their public transit systems. Smart restructuring could position rideshare’s unique tech and platforms to advance the aims of transit systems and to enable drivers to benefit from the value they create.

Disclaimer: this is an adapted version of my final paper for URBS 452: Community Economic Development at the University of Pennsylvania. The paper built on learnings from class and from URBS 419: Urban Transit in Flux, also at the University of Pennsylvania.